Central banks key to Asia markets this week

Three central bank meetings will take the spotlight in Asia-Pacific during this holiday-shortened week.

Several Southeast Asian markets including Singapore, Malaysia, India and Indonesia are closed on Monday and South Korea will be closed on Thursday. Meanwhile, Shanghai markets will resume trade on Wednesday following a week-long holiday.

On Tuesday, the Bank of Japan (BOJ), Reserve Bank of Australia (RBA) and Bank Indonesia all announce policy decisions.

BOJ

Consensus is for current policy to remain unchanged, but the central bank could debate its 2 percent inflation target in light of recent data. Core consumer prices rose 1.1 percent in August from a year ago, excluding the impact of April's sales tax hike - slower than July's 1.3 percent increase.

"There is speculation in the press that the BOJ may emphasize a more flexible timeframe for achieving its 2 percent inflation goal... this may mean less likelihood of further policy easing any time soon," said Greg Gibbs, senior currency strategist at RBS in a note.

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This week's meeting precedes another rate review at the end of October, which is considered more important as the central bank is expected to produce new quarterly economic forecasts at the late-October meeting.

Australia's central bank is expected to keep policy unchanged as governor Glenn Stevens grapples with a potential housing market bubble. In its Financial Stability Review two weeks ago, the RBA said that it may take measures to tighten bank lending to cool the sector after observing a "strong pick-up in growth in lending for investor housing."

Analysts expect the RBA to leave rates on hold at a record low of 2.5 percent for a while.

"The Reserve Bank of Australia looks happy on the sidelines as the interest‐sensitive sectors are only gradually improving. Intense competition to lend has provided additional monetary stimulus. Rate normalization will not be considered until the labor market shows sustained improvement, and forward indicators," said economists at Moody's Analytics in a report.

Bank Indonesia is also widely expected to leave rates on hold on the back of weak data: the country's trade balance swung back into a deficit in August following's July's surplus.

Economic data on tap

Japan will release August machinery orders on Thursday and could post a third consecutive gain. Moody's expects a monthly gain of 2 percent and sees orders accelerating further in coming months. The report is a key measure of corporate spending, an integral factor in Prime Minister Abe's strategy to beat deflation.

Finally, India's foreign trade report for September is due on Friday. After export and import growth cooled in August, this report could help determine whether recent slowness was just a temporary blip.

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"We expect [trade] inflows and outflows to have accelerated in September," said Moody's Analytics. "India's domestic economy is recovering, albeit slowly, and the global economy continues to improve, led by the U.S. economy."